United Arab Emirates: UAE Is Not A Mature PE Market But Technology Might Help Managers' Fundraising Efforts

Last Updated: 9 August 2019
Article by TMF Group

Technology tools combined with traditional roadshows are enabling managers to connect with new investors, be it for primary or secondary private equity fund products.

One of the biggest issues facing the global PE industry currently is allocating capital to the right investments without falling into value traps and overpaying for companies, such are the record levels of dry powder in the market.

When it comes to fundraising, roadshows are still important but according to Thomas Erichsen, Regional Director EMEA, Private Equity & Real Estate at TMF Group, "technology is beginning to play quite a big part, with some managers raising a particular amount and finding new, quicker ways to allocate the capital via technology".

"This has changed the allocation process to some degree in the private fund marketplace, as managers use technology as well as traditional methods to connect with the right profile of investor," says Erichsen.

For newer, less mature PE markets, such as the one being developed in the United Arab Emirates, technology tools combined with traditional roadshows are enabling managers to connect with new investors, be it for primary or secondary PE fund products.

Erichsen notes that the UAE has always been an early adopter in technology, in general. He says that the majority of the fund managers in the region are vertically integrated, "meaning they have their own middle and back office".

"With that said, a fair amount of technology is implemented in order to handle the work load. The usage of technology for fund raising is simply a natural step," says Erichsen.

Technology platforms like Murano, which aims to help better connect GPs to LPs, and CEPRES, which gives institutional investors a way to effectively benchmark private capital market investments, using technical and fundamental analysis, are reshaping the way that fundraising is conducted.

Abu Dhabi-based Gulf Capital, one of the Middle East's largest private equity firms, is gearing up to launch its fourth fund in 2020 with chief executive Karim El Solh telling The National that the new fund is likely to be larger than the USD750 million GC Equity Partners Fund III. Reflecting the fact that PE managers need to be patient when putting capital to work in the current economic climate, El Solh said he expected Fund III to make between three and five more investments in 2019, stating: "It's hard to say exactly when as [deals] can take a long time to bake."

The number of PE funds being set up locally within the UAE is on the rise, not only within the traditional jurisdiction of the DIFC (Dubai International Financial Centre) in Dubai but also in the Abu Dhabi Global Market (ADGM), a financial free zone established in 2015. According to Preqin data, there were 17 private equity-backed buyout deals in the MENA region in 2018. Although this was the same number as those recorded in 2017, the average aggregate deal value increased from USD350 million to USD743 million year-on-year.

For PE managers considering launching funds within the DIFC, they should be aware that their fund activities are subject to regulation and supervision by the Dubai Financial Services Authority (DFSA). There is a zero rate of personal and corporate tax in the DIFC for a period of 50 years from the date of establishment of the DIFC (Dubai Law No. 9 of 2004).

"In the UAE, investment fund regulation is very clear and straightforward to understand for international businesses and investors. It's becoming an attractive jurisdiction to set up new fund structures," states Stephanie Williams, General Manager of TMF UAE. "At present, these local funds are typically making investments globally but going forward there will be a push by the UAE government for more investments to be made locally."

From a fundraising perspective, many of the private banks in the UAE are well attuned to PE investing but as Williams points out: "The market here is a lot more mature than in years past. We are seeing a drive for fundraising to happen within the country and in the wider region.

"In the past, people went beyond the UAE to do fundraising, doing roadshows in the likes of London, Hong Kong, Singapore. Now, however, those roadshows are taking place within the UAE. That's one of the biggest changes we are seeing, and it is being born out by the number of requests we are getting for fund administration services."

Of course, whenever a PE manager is setting up a new fund, one of the key considerations, jurisdictionally, is the amount of tax efficiency that can be achieved. "For that reason," says Erichsen, "the managers we talk to in the region are keen to launch local funds but at the same time they want to get some sort of European exposure by launching a parallel fund (i.e. in Luxembourg).

"The developmental signs in the UAE are all positive and hopefully we will be one of the first movers to provide all the necessary fund administration and regulatory requirements for those managers wishing to launch funds at the local level. I think we will see more and more fund launch activity going forward."

From an investment opportunity perspective, Williams says there is quite a substantial interest among PE managers in fintech businesses. This is a key growth area for the Gulf Region, more broadly. A statement issued by the organising Committee of the First Arab Digital Economy Conference last December, said the digital economy can contribute more than USD3 trillion to Arab GDP growth. Currently, the digital contribution to the economies of the Arab countries is only 4 per cent compared to 22 per cent globally.

"We see a lot of focus on fintech investments here, including deals with a crypto element to them, which has been quite interesting.

"There is a drive from the Mubadala and other government-backed institutions to develop the investment platform in the country, moving forward.

"We do see less focus on ESG and impact investing compared to other markets but I think that will change as we now have the Mena Index. More investors are reviewing it before they make investment decisions. Hopefully, we will start to see more local (ESG-focused) investments and fund products being launched as a result," comments Williams.

One area of future growth that could propel the size of the UAE's PE market is that of PE secondaries, which, at a global level, has enjoyed some strong momentum in recent years.

According to the annual Setter Capital Volume Report, the private equity secondary market increased 36.2 per cent to USD70.2 billion in 2018.

"Given that the PE primary marketplace is doing so well, it is creating a spill-over effect, which we are seeing in the secondary market. Managers may, over the course of time, want to change direction in terms of what they are investing in to, and will look to liquidate out of certain long-term investments. Selling GP interests on the secondary market is a way to do this," says Erichsen.

Erichsen is quick to state that PE secondaries is absolutely an important growth area for the UAE. He says that two main types of secondary deals are becoming prominent, not just in the UAE, but globally: GP-led restructurings and single asset deals.

"Due diligence on each deal includes risk and stability in the region to be invested into. The UAE has become an attractive region for numerous reasons; those that are most familiar from an economic and cultural point of view will always lead the way. To that end, TMF Group is reinvesting into its business to be a part of the UAE growth story," remarks Erichsen.

As Private Equity Wire reported on 18th June, Chicago-based Adams Street Partners, one of the biggest private equity investors, announced it had closed its sixth secondaries fund. The Adams Street Global Secondaries Fund 6 attracted USD1.05billion from LP commitments and is the last example of a continuing maturation of the global PE secondary market.

This follows on the heels of Whitehorse Liquidity Partners, who closed its second private equity secondary fund at a hard cap of USD1 billion, in addition to Commonfund Capital, who raised USD 450 million for Common fund Capital Secondary Partners II.

One appealing aspect of PE secondary funds is the risk-adjusted return profile, which typically tends to be a bit lower because the investor is coming into the fund further along the J curve - that is, further into the investment lifecycle – than if they had committed capital to the fund at inception.

Erichsen says that PE secondary managers (and their investors) have a lot more fundamentals to look at from a data perspective and can analyse portfolio companies in greater detail; i.e. looking at things from a fund NAV perspective rather than an enterprise value perspective.

The level of transparency is a compelling feature of PE secondary investing, compared to committing capital blind to a new fund vehicle, he says.

In his view, technology is touching the PE industry at various levels, not just in terms of analysing secondary investments "but also in the way that managers raise capital, deploy capital, and operate their businesses. They may be able to unlock value quicker because of the transparency that historically the asset class did not have."

Need more information? Contact us today.

This article was originally published by Private Equity Wire and Property Funds World.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions